The report, based on research by an independent panel of experts, sets out how the legal production and supply of cannabis could work in the UK. It proposes allowing the sale of cannabis to over 18s from specialist, licensed retail stores, alongside home-cultivation for personal use and small scale licensed cannabis social clubs.

There would be regulation around the price, potency and packaging of cannabis available from retailers, who would be licensed and overseen by a new regulator.

According to the report, ‘taxation of retail cannabis offers the potential for significant government revenue’, although this would not be the primary goal of the new policy, which the Liberal Democrats say is intended to address public health and social policy issues.

Exactly how taxation rates would be set depends on the pricing policy and controls introduced, the report says.

In the US, certain states have already decriminalised cannabis, including Colorado. Since the marijuana tax was first imposed in 2013, in the last year alone Colorado has raised $66m (£43m) from sales of the drug, outstripping original estimates of potential tax revenues. Marijuana was legalised in Colorado in 2012. 

‘We note that there will be a significant gap between unit production costs – which are likely to be far lower in a legal market – and retail prices if the latter are initially maintained at or near current illicit-market levels using minimum unit pricing, as proposed.

‘Unless a state monopoly was established, this gap will necessarily be filled by substantial profit margins for commercial producers and retailers or, similarly to legal tobacco sales, a substantial tax haul for government (or some balance of the two),’ the report states.

The Liberal Democrats say there needs to be a tax regime which allows a reasonable profit margin for commercial entities, and does not set taxation rates so high that significant incentives are created for tax avoidance or the diversion of legally produced cannabis for sale on the illegal market.

The report considers a number of options including tax by unit weight, by drug potency, or a fixed rate VAT. In addition to this tax revenue generated from cannabis production and sales, it says there will also be tax revenue from industry-related earnings and wages, and potentially from other sources such as licence fees.

The recommendation is for a system based on taxation of both production and sales, with potency by weight being the taxable unit.

Unlike similar initiatives in the US and Uruguay, the Liberal Democrats do not recommend that a portion of cannabis tax revenue is ring-fenced for drug treatment, prevention and harm reduction education, or other social programmes.

The report states: ‘We acknowledge that this is politically attractive proposition, but it is also problematic. In our view, drug services should be properly funded regardless of whether cannabis regulation goes ahead, and how much revenue is raised under the regulated framework. Public health interventions should be funded according to need, not be dependent on sales.’

However, the report argues that the costs of setting up and maintaining the necessary regulatory infrastructure will easily be covered by the new tax revenue, and savings across the criminal justice system.

Norman Lamb, Liberal Democrat health spokesperson. said: ‘Every year, billions of pounds are put into the pockets of organised criminals selling cannabis, and vast amounts of police time and resources are wasted, going after those using the drug.

‘We have to be ambitious. It is not good enough to continue pretending that everything is ok, or that the current system is working. Millions of British citizens are using cannabis with no idea of the potency of what they are taking.

‘Politicians must stop making excuses for ignoring the evidence and accept a new approach is needed.’

The report, A framework for a regulated market for cannabis, is here